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Morning Commentary

July corn up 5 ¼ at $4.4725

July beans up 4 at $8.92

The DOW is down

USD is stronger

Crude oil down $.09 at $52.19

Good morning,

Corn  bulls are talking about a possible short squeeze in the frontend of the market, the JUL19 contract, which is challenging a 5-year high. In above average volume, preliminary open interest surged another 36,000 lots!  The best gains came in Sep (37K lots) and Dec (23K lots).  The trade count had the fund buying 38,000 corn.  Funds are now thought to be long 126,000 lots.  If realized, the fund holds the largest long position in a year.  The short term trend for July corn is bullish.  The market is poised to trade 465.5 in the near term.  Closing below 420.5 signals a correction. 

Soybean  bulls are keeping a close eye on further delays in U.S. planting, especially in parts of the eastern belt where more rains are in the forecast. There’s also been more talk of producers having to replant soybean fields. In below average volume, preliminary open interest surged 21,000 lots!  The best gains (14K lots) came in Nov.  The trade count had the fund buying 10,000 beans.  Funds are now thought to be short 103,000 lots. The short term trend for July beans is bullish.  The market is poised to trade 910.5 in the near term.  Closing under 863.5 signals a correction. 

Brazil’s government said it has lifted a suspension of beef exports on China after dealing with an atypical case of mad cow disease, which ultimately sent shares of Marfrig Global Foods, Minerva SA, and other Brazilian meatpackers soaring. Keep in mind, the suspension had been in effect since June 3rd after a case that was reported in a 17-year-old cow in the state of Mato Grosso. From what I understand, cases can arise spontaneously in cattle herds and usually in animals 8 years old or older.

The latest data from the U.S. Grains Council shows just how important ethanol has been to U.S. ag exports over the past 10 years. In 2018, U.S. ethanol exports totaled more than +1.7 billion gallons or the equivalent of +600 million bushels in corn, valued at nearly $3 billion. Using trade data on 47 different agricultural and ag-related product groupings tracked by the USDA FAS via the Global Ag Trade System (GATS), analysis reveals the volume of ethanol exports grew by +18% per year over the past five years and +13% per year over the past 10 years. Growth for each group was calculated on a five and 10-year trend line and then adjusted for volatility. Of the 47 groups evaluated over the past five years, 21 showed negative growth over the period. The rest increased, but at a slower rate than ethanol. This data falls in line with increasing ethanol trade globally and demonstrated why ethanol market development is so important to U.S. farmers and ethanol producers. In another sign of competitive strength, the U.S. share of world ethanol exports reached a record 61% in 2018, which is up from only 9% a decade ago. Over this period, the United States has gone from the world’s largest ethanol importer to the world’s largest exporter! The U.S. Grains Council has been an important driver of foreign market development activities in partnership with USDA’s FAS, Growth Energy, the RFA and state corn organizations. They now have efforts in 40 different markets funded by the ethanol industry, corn growers and exporters programs. What these programs try to do is educate other markets on the value ethanol can add. When they understand that ethanol has fewer emissions, higher octane value and costs less than fossil fuel alternatives, it’s a real win in developing foreign markets around the world. I’m personally curious if we can keep this pace and the title of being the world’s global supplier? I’d love to argue yes, and I believe we will be for many more years. Perhaps the bigger question is when other nations start to build out more of their own corn-based ethanol plants, like we are seeing South America, China, etc… will they purchase their corn needs from the U.S. or look towards lower cost producers in Argentina and Ukraine? There’s also the looming cloud of questions surrounding electric vehicles and how much market share could be taken from ethanol? I know some want to argue we’ve now seen peak ethanol export for the U.S., but I don’t think that’s the case at all. In fact, I see exports being the main driving force for the industry during the next few years. Further out on the horizon, it’s really tough to forecast. (Source: USDA, FAS, USGC)

 

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